The International Monetary Fund (IMF) has confirmed the return of subsidy on petrol, saying the Bola Tinubu administration has surreptitiously brought back subsidy through the backdoor, following public outcry and general hardships attendant upon the removal of subsidy in May last year.
This is as it encouraged the government to remove electricity tariffs.
According to the Bretton Wood institution, the Nigerian government has resumed the payment of subsidies on the premium motor spirit (PMS), otherwise known as petrol.
It would be recalled that during his swearing-in speech, on May 29, 2023, President Bola Tinubu announced an end to petrol subsidy, a development that was a devastating trigger for a hike in the prices of goods and services in the country.
To exacerbate the hardships, the Central Bank of Nigeria, a few weeks after the removal of subsidy collapsed the different exchange rate regimes into one, with the value of the naira to the dollar tumbling down to a record low.
Over the weekend, the IMF issued a statement on the conclusion of its Executive Board’s Post Financing Assessment with Nigeria, and it expressed concerns that the government had capped the prices of fuel at retail stations.
The global lender advised the administration of President Tinubu to completely stop the payment of subsidies on petrol to free funds to run the government.
However, prominent Nigerians and regional groups had at different times scolded the IMF for what they described as “anti-masses policies”, and called on Nigerian government to explore home grown options that would fix the economy and better the life of the people.
In the past few days, there have been reports of queues returning to petrol stations in major cities in the country, but the Nigerian National Petroleum Company (NNPC) Limited allayed the fears of consumers, assuring that it has enough to go around.
How petrol prices feared since subsidy removal
Immediately after the end of the subsidy regime, the pump price jumped from N185 per litre to N400 per litre, and then to N568 per litre at NNPC fueling stations, while others currently sell above N600.
The government had said the prices would fluctuate after subsidy removal from time to time but the pump price has maintained a steady rise despite the fact that the price of crude oil in the global market keeps going up and down.
The IMF, in its latest statement at the weekend, said the Tinubu administration has “capped retail fuel and electricity prices” ostensibly to “ease the impact of rapidly rising inflation on living conditions, thus partially reversing the fuel subsidy removal.”
Despite the numerous assurances by President Tinubu that the subsidy was gone, the federal government paid N169.4 billion as subsidy in August 2023 to keep the pump price at N620 per litre.
A document from the Federal Account Allocation Committee (FAAC), showed that in August 2023, the Nigerian Liquefied Natural Gas (NLNG) paid $275m as dividends to Nigeria via NNPC Limited. NNPC Limited used $220 million (N169.4 billion at N770/$) out of the $275 million to pay for the PMS subsidy. Then NNPC held back $55 million, illegally.
Many analysts believe that with the rate of devaluation of the naira, in coming months, petrol may sell for N1000 per litre.
IMF urges Tinubu to remove electricity subsidy amidst increasing, hardships
Meanwhile, in a related development, the IMF advised President Tinubu-led administration to complete the total deregulation by phasing out electricity subsidy in the country.
This advice comes against the backdrop of high cost of living and increasing hardships across board in the country.
According to its published ‘Post Financing Assessment (PFA)’ report, the IMF urged the administration not to overwhelm itself by burden imposed by subsidy on electricity, adding that total removal of both fuel and electricity subsidies must be implemented as a way to complete the reforms of the economy.
According to the Bretton Woods Institution , the only way to achieve macroeconomic stability is through the removal of subsidy on electricity.
This position is in tandem with the Tinubu government said late last year that electricity subsidy between January and September 2023 had gulped N375.8 billion, as power consumers paid a total of N782.6bn for the commodity during the same period.
The IMF praised the federal government on the reforms it had implemented so far but reiterated that the fuel and electricity subsidies should be removed.
“The new administration has made a strong start, tackling deep-rooted structural issues in challenging circumstances.
“Immediately, it adopted two policy reforms that its predecessors had shied away from: fuel subsidy removal and the unification of the official exchange rates. Since then, the new CBN team has made price stability its core mandate and demonstrated this resolve by dropping its previous role in development finance.
“On the fiscal side, the authorities are developing an ambitious domestic revenue mobilization agenda. Like many other countries, Nigeria faces a difficult external environment and wide-ranging domestic challenges.
“External financing (market and official) is scarce, and global food prices have surged, reflecting the repercussions of conflict and geo-economic fragmentation.
“Per capita growth in Nigeria has stalled, poverty, and food insecurity are high, exacerbating the cost-of-living crisis.
“Low reserves and very limited fiscal space constrain the authorities’ option space. Against this backdrop, the authorities’ focus on restoring macroeconomic stability and creating conditions for sustained, high and inclusive growth is appropriate.
“The CBN has set out on a welcome path of monetary tightening. The Governor has committed to making price stability the core objective of monetary policy, and the CBN has taken actions to mop up excess liquidity.
“Continuing to raise the monetary policy rate until it is positive in real terms would be an important signal of the direction of monetary policy.
“The government’s focus on revenue mobilization and digitalization would improve public service delivery and safeguard fiscal sustainability. The envisaged reduction in the overall deficit in 2024 would help contain debt vulnerabilities and eliminate the need for CBN financing. Temporary and targeted support to the most vulnerable in the form of social transfers is needed, given the ongoing cost-of-living crisis. Fuel and electricity subsidies are costly, do not reach those that most need government support and should be phased out completely,” IMF said.
Recall that the Nigerian Electricity Regulatory Commission (NERC) had earlier said that the government subsidised electricity in the first, second and third quarters of 2023.
According to report power distribution companies billed electricity users a total of N1.06 trillion nationwide during the nine months, but received N782.6bn despite the blackouts in many parts of Nigeria.
On subsidy payments, it was noted that in the first quarter of 2023, the Federal Government subsidised power by N36 billion, this increased to N135.2 billion in the second quarter, and skyrocketed to N204.6 billion in the third quarter.
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